EC If Frac Sand Is So Hot—Why Are Sand Stocks So Cold?

It has been a rough couple of months for the shareholders of the big four frac sand suppliers.

At the start of 2017 everyone–including me–was buying into the bullish story for these companies based on the industry trend of sand, sand, and more sand. Sand has been the #1 efficiency driver for the North American oil and gas industry.

But take a look at what has happened to this sector from the peak in February until now:

Ticker Company 2017 Share Price Peak Current Share Price Decline % Decline
SLCA U.S. Silica $61.49 $37.39 $24.10 39%
EMES Emerge Energy $24.45 $11.19 $13.26 54%
HCLP Hi-Crush $23.30 $13.37 $9.93 43%
FMSA Fairmount Santrol $13.12 $5.00 $8.12 62%

The average share price decline for this group of companies over a period of just 3 months is 49 percent.  What exactly was it about first quarter numbers that the market hated so much?

Let’s do some digging.

Frac Sand Q1 – Significant Volume and Revenue Growth

When looking for answers I always do the same thing.

Head on over to the SEC website and drill into the some 10Qs and 10Ks.

People tell stories, the numbers tell the story.

The average share price of the big four frac sand companies has been cut in half since February, so how disappointing are the Q1 numbers from 2017 compared to Q1 2016?

The first thing I looked at were sales volumes, as in how much proppant these companies actually sold. Here is what I found:

Ticker Company Q1 ’17 Volumes Q1 ’16 Volumes Increase % Increase
SLCA U.S. Silica 3,393 2,273 1,120 49%
EMES Emerge Energy 1,251 439 812 185%
HCLP Hi-Crush 1,381 962 419 44%
FMSA Fairmount Santrol 2,700 2,100 600 29%
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Kurt Kallaus 2 years ago Contributor's comment

Very good research & insight. A frustrating area for many investors I'm sure when looking at such strong financial improvement & prospects, yet sharply falling share prices.

It seems that as important as earnings & revenue are, that Oil prices still dominates pricing of these stocks. Would you agree that sand stocks will struggle until Oil returns to mid to upper 50's? In the case of SLCA, it has almost the exact same retracement as Oil prices (USO) of the rally from the 2016 low to 2017 high (almost 60%).

Also I wonder how much favorable comps for the next few quarters may prevent further heartache for investors - as long as Oil doesn't fall further?